TORONTO, Feb. 3 /CNW/ - According to the latest results of the Russell Active Manager Report, active managers believe 2010 will offer an opportune chance to add value above the S&P/TSX benchmark.
"The view from active managers is that 2010 will generally be more of a stock-picker's market, which is what we started to observe in the fourth quarter of 2009," says Kathleen Wylie, who has interviewed and evaluated hundreds of investment managers as part of her responsibilities as a senior research analyst at Russell Investments Canada Limited.
"The expectation is that stock selection rather than sector positioning will have a larger impact on active manager performance in 2010, compared to 2009. The improvement in sector breadth that started in the fourth quarter of 2009 appears to be extending into 2010, which will certainly benefit the benchmark-relative performance of active managers. If correlations of stock returns are lower, this development will make it a better market for picking stocks. As a result, investment managers with skill in selecting stocks will be rewarded."
According to Wylie, the first month of 2010 has already started off very favourably for large cap Canadian equity investment managers, with 8 out 10 S&P/TSX Composite Index sectors ahead of the benchmark and only the Energy and Materials sectors lagging.
"If this trend continues, it should be a very good quarter for active managers to beat the S&P/TSX benchmark since large cap managers have their largest underweights to Energy and Materials. The first quarter also appears to be tilted toward value managers, based on their sector positioning. For instance, value managers have their largest overweights in Consumer Discretionary and Consumer Staples and their most significant underweights to resources, particularly Materials," says Wylie.
"For the month of January, value managers were more favourably positioned in 9 out of 10 sectors, but we all know that the environment can change quickly and styles come in and out of favour. As a result, the best approach is a well-diversified portfolio of multi-managers with complementary styles so that investors can weather all types of environments."
Active managers looking to build on late 2009 outperformance over S&P/TSX
Canadian large cap managers posted their largest returns in over three decades in 2009 - returning 32.8% last year, following a -31.8% return in 2008. However, large cap managers still lagged the S&P/TSX Composite Index by their widest margin since 1999, as the S&P/TSX benchmark returned 35.1%.
"Normally, we expect stock selection to be the main driver of excess returns for active managers. However, adding value from stock selection becomes more challenging for active managers when you have only three or four sectors outperforming and stock returns that were highly correlated," explains Wylie.
Approximately 36% of large cap managers outperformed the S&P/TSX benchmark in the first quarter of 2009, 38% in the second and 41% in the third. By the fourth quarter of 2009, sector breadth improved with seven out of 10 sectors beating the benchmark and 57% of managers outperforming the benchmark.
Active management adds value over the long run
Although 2009 was one of the most challenging investing environments for active managers in terms of outperforming their benchmarks, Russell data confirms that Canadian large cap equity active managers have historically added value over time.
"Over the past 10 years, large cap Canadian equity investment managers have outperformed the benchmark on average by roughly 190 basis points per year," says Wylie.
"This level of outperformance highlights the benefits of active management and expert stock selection over the long run."
For the full Russell Active Manager Report, please contact Thien Huynh: 416-640-2529
Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With approximately $184.9 billion CDN in assets under management (as of Dec. 31, 2009), Russell Investments serves individual, institutional and advisor clients in more than 40 countries. Russell Investments provides access to some of the world's best money managers. It helps investors put this access to work in corporate defined benefit and defined contribution plans, and in the life savings of individual investors.
Founded in 1936, Russell Investments is a subsidiary of Northwestern Mutual Life Insurance Company and headquartered in Tacoma, Wash. Russell has principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto.
Russell Investments Canada Limited is a wholly-owned subsidiary of Frank Russell Company. For more information, please go to www.russell.com/ca.
SOURCE Russell Investments Canada Limited
For further information: For further information: Thien Huynh, (416) 640-2529; Katita Stark, (416) 929-9100